Purpose of slide: Illustrate that there is a significant growth potential for operators to address new segments and areas to further increase penetration. These segments have not been able to address profitably before, but with Expander type solutions, this is now a reality Link to next slides – killing a few false assumptions and food for thought ---------------------------------------------------------------------------------------- Ericsson believes that acquiring new subscribers in high growth areas is not about the “next billion” per se. Rather, depending upon how actively an operator manages their traffic and total cost of ownership, the number of addressable subscribers increases. In fact, by actively managing traffic and total cost of ownership, operators can profitably acquire increasingly lower spending subscribers in high growth markets. For example, based on present cost structures and effective infrastructure utilization, 3 billion subscribers could be reached at end-user spend levels of USD 3.50 per month . End user spend is not the same as ARPU ARPU includes interconnect cost which inflates the number relative to the actual end-user spend which may be 20-30% below the ARPU ARPU is also heavily affected by regulated interconnect tariffs and therefore not a good benchmark High ARPU does not necessarily imply high profitability. ... Considering that these users have a much lower spend. Operators need to go down in ARPU per user to increase the number of users and they wish to do so profitably.
Purpose of slide: To sum up the reasoning so far and point out that it is all about running your business as effective as possible!
It is clear that collectively there is money within this segment of the population, the wilingness to spend is there as long as the social and economic benfits can be expressed. An example of an innovative business model approach is shown by Mohammed Yunus founder and Director of the Grameen Bank, Bangladesh, they specialise in micro loans. Starting with loaning just $27 to 42 clients in 1976 they have now loaned over $5B to over 1 million clients. Orignally not focussed on telecomms, they evolved and perfected their business model providing telephony and are now pioneering the same model in over 100 countries.
The next billion market is already well known! Most of the future subscribers live in an area already covered by GSM (203 countries in the world have GSM today, i.e. 99.7% of the world’s population live in a country with GSM coverage) . Markets with highest growth potential include China, India, Indonesia, Russia, Brazil, Mexico, the Phillipines, Nigeria, Pakistan, Vietnam, Thailand and Egypt. “ Future-proof technolgy – evolving demands”: The needs of these users are likely to develop over time, so even if the demands are very basic from start, the technology must allow for gradual expansion both in terms of capacity, quality, and services offered. Today’s operators are best positioned – have large amount of fixed costs – large subscriber base allows them to spread out costs and leverage economies of scope and scale. The actual cost to acquire a new customer won’t be as large as acquiring a new subscriber in the past. Thus, overall average costs will be lower. Subscriber Characteristics: Mobile phone the fist phone – low fixed line penetration Cash economy – requires Pre-Paid subscriptions Service Differentiation needed to enable a low ARPU segment without cannibalizing on the high ARPU segment (see next slide)
Although Shared Networks might refer to sharing the whole network, in practise the most interesting part to share among operators is the radio-infrastructure. This because the radio-infrastructure is usually about 80% of the initial investments for building a network based on coverage. Although Shared Networks focuses on sharing the radio-network, in some solutions part of the Core Network is also shared to allow sharing the radio network. However, each operator keeps its individual Core Network and Service Network to allow service differentation among the operators. Also, each operator can complement the Shared Network with its individual coverage. Shared Networks is applicable for licensed operators. This makes the distinction with Mobile Virtual Network operators (MVNO), as an MVNO does not have a license. A MVNO is based on a commercial agreement with a licensed operator (Host Network Operator, HNO) to use capacity of its network. So, in a Shared Network among two licensed operators, each operators can host many MVNOs if desired, without impacting the Shared Network (except for dimensioning due to the increased traffic demands). Shared Networks is not only about reduced investments. It is also a way to obtain more coverage with the same amount of investments and allows for cost-effective coverage of a larger area. As Shared Networks enables to increase the coverage and there by reduce the overall Time To Market.
The Marketing theme ”Communication for All” is about connecting more users to telecommunication networks. Ericsson believes that it is possible to make telecommunication affordable for, more or less, all. All new networks will be mobile . Reasons for this is that this is the most cost-efficient technology and the way to really provide universal access to people. Developing markets are not hindered by high levels of fixed investment, and therefore operators can leapfrog directly to new technologies (WiMAX, EDGE, GPRS, 3G, WLAN etc). As the spending power is low, there cost for offering services to these people needs to be low. Therefore cost-efficient infrastructure and low cost terminals are needed. Useful applications , targeted to the needs of people in emerging markets are equally needed. New business models may be needed, as today’s business models may not be viable (especially in rural areas). Sharing infrastructure, as well as buying capacity and coverage (through Managed Capacity models), may be ways to overcome the hurdles f reaching more low-spending users. Even if the initial service will be voice, data services will follow. Therefore it is important that the infrastructure is prepared for data access, by e.g. EDGE.
Communication for All Bodil Josefsson Head of Communication for All initiative Ericsson believes in an all communicating world where telecommunication is affordable for all
Source: The Economist - March 10, 2005 On March 14 United Nations launched a “ Digital Solidarity Fund”
Some facts... <ul><li>In the next 5 years, another 1B subscribers are forecasted in the GSM networks, whereof BRIC (Brazil, Russia, India and China) cater for over 400 Million. Source: EMC and UN statistics end 2004 </li></ul><ul><li>People in poor countries spend a larger proportion of their income on telecommunications than those in rich ones. Source: The Economist, March 2005 </li></ul><ul><li>A developing country which had 10 more mobile phones per 100 population between 1996 and 2003 would have enjoyed per capita GDP growth that was 0,59 percent higher than an otherwise identical country. Source: London Business School, 2005 </li></ul><ul><li>A mobile network costs 50% less per connection than fixed lines and can be rolled out appreciably faster. Source: Vodafone Policy Paper, March 2005 </li></ul><ul><li>97% of the population in the villages investigated knew about mobile telephony and 50% had used mobile phones. In contrast, 76% did not know what a computer is and only 3% had used one. Source: Socio-economic study in Tanzania by UNDP/SIDA, autumn 2004 </li></ul>
… with end-user spend of only 3,5 USD per month! 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 10 6,7 5 3,3 Potential subscribers USD/ month mobile spend 2008 2004 Millions of users Current penetration
Can you achieve – High margins with low ARPU? Profitability with low tariffs? Profitability with pre-paid?
Yes – Low ARPU with healthy margins! Source:Merril Lynch – Global Wireless Matrix 3Q2004
Yes – Low tariffs with healthy profitability! Source:Merril Lynch – Global Wireless Matrix 3Q2004
Yes – Pre-paid with healthy profitability! Source:Merril Lynch – Global Wireless Matrix 3Q2004
Low ARPU markets can have high margins ! Low tariffs do not have to hurt profitability ! Pre-paid does not necessarily lead to low profits ! It is how well the business is managed that matters! Yes!
Market potential - an estimate of the potential ( Source: World Resource Institute) <ul><li>680 million households in 20 emerging markets making less than US$ 6000 anually / household </li></ul><ul><li>Total households annual earning, US$ 2 trillion </li></ul><ul><li>Willingness to spend 5% on telecom connectivity (excluding applications & enterprise) </li></ul><ul><li>Total annual potential market, </li></ul><ul><li>more than US$ 100 billion. </li></ul>Huge market potential in emerging markets
The power of mobile telephony <ul><li>Mobile phones substitute for fixed phones in poor countries, but complement fixed lines in rich countries </li></ul><ul><li>Mobile phones are lower cost and far quicker to roll out than fixed lines </li></ul><ul><li>Higher mobile penetration leads to higher GDP </li></ul><ul><li>Access to mobile communication saves travel time etc </li></ul>
Market characteristics <ul><li>Mobile the only phone </li></ul><ul><li>Cash economies </li></ul><ul><li>Initially willing to share subscription (or pay per use) </li></ul><ul><li>Lack of basic utility and communication infrastructure in rural areas </li></ul>“ Business is good for development and development is good for business” Ian Johnson, World Bank, Vice President Sustainable Development. Traffic based... And subscriber based
Areas to address when extending access to more users Phones Infrastructure Applications Customer handling New business models Financing Regulation and taxation
The phone! Evolution from shared phones to individual phones Village phone Family phone Personal phone
Targeted applications are needed 4 priority areas identified <ul><li>Healthcare </li></ul><ul><li>information </li></ul><ul><li>campaigns </li></ul><ul><li>treatment </li></ul><ul><li>Education </li></ul><ul><li>information sharing </li></ul><ul><li>Internet access </li></ul><ul><li>Mobile banking </li></ul><ul><li>money transfer </li></ul><ul><li>mobile wallet </li></ul><ul><li>B2B trading </li></ul><ul><li>pricing / market info </li></ul><ul><li>hiring </li></ul>
Technology Leapfrogging <ul><li>Developing markets are not hindered by high levels of fixed investment therefore operators can leapfrog directly to new technologies and this is happening (WiMAX, EDGE, GPRS, 3G, WLAN etc) </li></ul><ul><li>Operators in many emerging markets are providing advanced services within months of their introduction in the developed world. </li></ul>
GSM provides global coverage Population in GSM Markets without coverage Population with GSM coverage, but no subscription GSM Subscribers 2,200 2,600 1,400 Non GSM Markets World population 6.4B <ul><li>Cost efficient coverage </li></ul><ul><li>Optimized entry solutions </li></ul><ul><li>Scalability </li></ul><ul><li>Cost efficient capacity </li></ul><ul><li>New services </li></ul><ul><li>Improve quality </li></ul>Sources: EMC and UN Q1 2005
Shared Networks Sharing of infrastructure among operators Revenue Coverage Savings <ul><li>Other examples of sharing: </li></ul><ul><li>Roads </li></ul><ul><li>Airports </li></ul><ul><li>Other infrastructure </li></ul><ul><li>Core network </li></ul><ul><li>Transmission </li></ul><ul><li>Radio network </li></ul><ul><li>Network Mgt </li></ul>
The transmission challenge Trade-off between capacity and distance Satellite more cost-efficient Microwave more cost-efficient “ Normal” mobile network (for surface coverage)
Outsourcing of operations - rightsizing capacity Traditional purchasing Managed Capacity Time Customer demand Over capacity Under capacity Over capacity Under capacity
Evolution towards more advanced services Adding data to the existing voice network URBAN SUB - URBAN RURAL Add data : Introduce GPRS Network capabilities Voice: GSM (existing nation-wide coverage) Increase data speeds : Upgrade of existing GSM/GPRS to EDGE
Cost for data alternatives Edge is cheapest if aiming at national deployment Edge WiMAX Number of users CAPEX (in MSEK) CPE cost around 300 USD No CPE cost, as EDGE will be built in to all phones in the future Note that this graph is only illustrative, and does not give any exact indications
The challenge with WiMAX BC In emerging markets, how many computers are there within a radius of 20 km? 20 km GSM gives universal access WiMAX adds capabilities to regions where the digital divide is already bridged
Conclusion <ul><li>Fixed networks will not be built out for voice services in emerging markets. Mobile networks will be the dominant infrastructure. </li></ul><ul><li>Cost-efficient infrastructure, useful applications and low cost terminals are needed. </li></ul><ul><li>New business models may be needed to overcome hurdles for operators to target low-spending users </li></ul><ul><li>Voice and SMS services will be the initial services, but data capabilities can easily be added to this infrastructure when needed </li></ul>